How to Select a Contract Manufacturer

Contract manufacturers’ quotes and quality audit results don’t tell the whole story. Here’s what you need to evaluate to make a good decision.

Hiring a contract manufacturer is similar to hiring a new employee: In both instances, candidates are evaluated based on skills and experience. However, evaluating a contract manufacturer made up of hundreds of people with a collective expertise in dozens of disciplines is significantly more complex than evaluating a single individual. Many OEMs perform only a cursory evaluation of potential contract manufacturing partners, but a comprehensive evaluation is essential. Here are all the qualities you should look for as you search.

Manufacturing Capability

It’s important to visit a potential contract manufacturer’s production facilities and make firsthand observations about the equipment, personnel, and processes used in every step of the production process. Some questions you’ll want to ask include:

Does the supplier have the floor space to absorb your requirements?

Do they have the volume and breadth of equipment needed to service your business?

Have they invested in quality equipment capable of delivering the speed, design innovation, ease of use, machine reliability, and service record you need?

Is it technologically current and well-maintained?

Manufacturing Process Strength

How product moves onto, around, and off of the production floor demonstrates a contract manufacturer’s commitment to quality, efficiency, security, and visibility. Questions you’ll want to ask include:

Are materials tightly controlled, clearly identified, and organized?

Are material lots barcoded?

How are documents controlled and proper revision levels enforced?

Is documentation electronically distributed to the floor through their network?

Is the production floor well organized?

Does it look good, clean, and bright? Would you want to work in that environment?

Do the individual manufacturing cells look clean, organized, and under control?

Do lean manufacturing principals seem to be observed?

Labor Capacity and Capabilities

A contract manufacturer’s labor capacity and their ability to effectively manage it may be the most important indicator of whether a given supplier is capable of meeting a customer’s needs. Questions to consider include:

Are their cost estimates in line with your needs and their costs?

Does the professionalism and sophistication of the supplier’s physical plant and processes match their quote?

Do parts per million (PPM), on-time delivery, and personnel turnover metrics indicate both high and stable performance levels over time?

What’s the unemployment rate in the supplier’s local market? (Low unemployment levels may make a supplier slow to respond to increases in your demand.)

Do they have degreed engineers on staff? What’s the training and background of their non-engineering technical staff?

Internal Documentation

Clear, complete, and professional technical documentation indicates that professional engineers are engaged in the contract manufacturing process. Ask what tools they use to produce their technical documentation and evaluate whether their choices are thoughtful, creative, and observant of industry standards. The employment of AutoCAD® tools suggests a strong engineering influence in the plant, as well as management’s financial commitment to the process.

Creative Problem-Solving Capabilities

At some point, every customer has a challenge that demands a creative response from their contract manufacturer. Technically strong contract manufacturers will have tool cribs and fixturing cages full of innovative solutions to unique problems. Ask to see examples or case studies that demonstrate this ability.

Commitment to Quality

To evaluate the depth of a contract manufacturer’s commitment to quality, find out which certifications they’ve earned. Rigorous industry certifications provide a meaningful measure of a supplier’s commitment to having a healthy, vigorous quality discipline in place and industry-specific certifications (AEC-Q200 certifications for automotive electronics, for example) are even better. You should also find out whether a contract manufacturer’s quality processes are fully staffed by trained people embedded throughout the organization. The influence of a strong quality department will be evident in how processes are designed and laid out throughout the business and by the breadth and depth of process controls in place.

Materials Management Expertise

When you partner with a contract manufacturer, you’re hiring their materials management and sourcing skills as much as you’re hiring their manufacturing expertise. Raw material typically represents more than 50% of the BOM cost and 75% of the project lead time. How effectively a contract manufacturer manages their supply chain can spell the difference between project success or failure. Questions that reveal an effective materials management team include:

Is there a separate materials department? Who does it report to? Has the planning and purchasing management team been formally trained and educated in materials management principles and practices? Are any members of the team certified in production and inventory management (CPIM)?

How do they plan and schedule production? Do they run some type of dynamic materials requirements planning (MRP)? How often does it regenerate? Do they incorporate customers’ MRP in their materials planning processes?

How do they control inventory? Is the warehouse secure? How is material pulled and delivered to production?

Do they do significant business with the people you would expect, given the commodities they buy?

Logistics Expertise

Logistics management is another critical service you’re buying when you hire a contract manufacturer, particularly given the international nature of many modern business operations. To find out how sophisticated a supplier is at moving raw material into their plant and finished goods out to customers, consider asking:

How many years of experience does the logistics management team possess?

Does the logistics team have significant experience managing international regulations, tariffs, and shipping processes?

Are the packaging, labeling, and shipping practices equal to the manufacturing processes?

Are they geographically positioned to support your supply chain and to minimize transportation lead times and costs?

Are they financially strong enough to support and grow with your business?

Are they strong enough to pay vendors consistently and within terms and keep their/your supply chain flowing?

Are they strong enough to survive in a volatile marketplace where a third of the supply base is either driven into bankruptcy or a forced acquisition by a larger competitor every five years?

What happens to them (and you) when they lose their largest customer or a recession hits?

What happens when the decision-maker at the hub of everything is absent? Are personnel and processes strong enough to keep things moving?

Conclusion

Contract manufacturers do more than just deliver a part; they deliver a broad portfolio of services that — if done well — holds the promise of providing great value to your company. Selecting a contract manufacturing partner capable of delivering on that promise requires some deeper investigation than can be accomplished through the typical evaluation of a candidate’s quote and quality audit results. When you evaluate a potential contract manufacturing partner, it’s important to ask thoughtful questions as you engage with the staff and tour the facilities. Ultimately, the process shouldn’t be all that different from hiring people for your own staff. Determine which attributes, experience levels, and other characteristics you’re looking for, ask candidates questions that reveal these attributes and, finally, ask to see corroborating evidence that supports their answers. By doing so, you will greatly increase the likelihood of selecting a contract manufacturer that will deliver the performance that your business requires.